Amazon and Brands – the Case for Cautious Diversification

By Colin Barnard | 18 Dec 2019

E-commerce in Australia continues to expand with expected growth of 40 percent over the next three years, to be worth almost US$40 billion by 2022.

While the appetite of Australian consumers is similar to the US and UK, the range and prices aren’t as mature as other developed markets. This is where foreign suppliers come in to help push the market along.

Australian consumers are digitally aware and tech-savvy, so they’re an attractive proposition to the likes of major overseas players like eBay, Asos and let’s not forget one of the Big Four, Amazon.

Despite launching in 2017, Amazon hasn’t had the big bang effect we had expected, partly due to our logistics conditions, including a disagreement with the Federal Government over GST on overseas orders, our supply market that’s prone to duopolies and oligopolies, and the high expectations of consumers.

From a customer viewpoint, we had access to Amazon’s global store, so we expected the same ranges and prices in the Australian store. When the local operation was developed, the ranges weren’t there which is understandable, however, Amazon went with a first to market strategy which meant they were at the behest of the ranges provided.

While the full impact of Amazon’s entry down under is yet to be felt, the retail giant is showing no signs of slowing down. Its subscription-based Prime delivery service is priced at more than half its US equivalent here, and its seamless omnichannel delivery experience is increasingly challenging the speed of local retailer’s fulfilment models. Amazon’s “people who bought this also bought this…” approach is also highly successful. Therefore, we can expect more investment and innovation from Amazon in 2020.

Amazon’s expansion is not only good for consumers and Australia’s e-commerce market but provides the scale and infrastructure to enable local brands to expand their horizons beyond more traditional retail partners. On the other hand, brands must remember there can be two sides to a partnership with the mega-player. For example, there’s been a recent debate on the credibility of Amazon’s product recommendations (i.e. Amazon Choice label) and what there is to stop the digital giant from favouring its own products versus the marketplace. In other words, there is a danger that retailers could be sleepwalking into more walled gardens.

So, the question remains, should retailers jump into bed with Amazon or forge their own strategy?

As online shopping continues to grow and more overseas players enter the market, diversification across online retailer partnerships is the key to creating a balanced marketplace.

Preference for partnerships

While previous interactions between a brand and any large retailer have functioned on a customer-vendor dynamic, this precludes the collaboration necessary to generate long-term success. However, mutually beneficial partnerships are arising.

Brands offer an increased level of collaboration combined with their unrivalled product and production data, while retailers offer sales data such as in-store shopping data, both helping to develop a full picture of the consumer.

Sales data is retailers’ biggest advantage over digital giants, not only providing a more accurate picture of the modern consumer on which to build effective marketing campaigns but also creates a symbiosis between the brand and retailer, something the likes of Amazon are currently unable to offer.

These partnerships represent the future of retail. Together brands and retailers can unlock an incredible treasure trove of data – from who customers are in the real world, all the way through to their purchases, purchasing times and what device they use when shopping online (i.e. data that Criteo helps brands and retailers analyse and monetise in the form of hyper-personalised ads). But this customer view can only be achieved in partnership.

A boost for brands

Some brands feel it’s illogical to form partnerships with online retailers as they see it as an opportunity for customers to purchase products away from their portal, but it is the opposite. Offering customers increased choice improves conversion rates from visitor traffic that normally wouldn’t stick.

What’s more, if a brand ensures its products are available through several retailers, not just one, it’s much easier for customers to find what they need, increasing sales. Multiple retailer partnerships put brands in a better position to negotiate partnerships with retailers and showcase products to new customers while nurturing local customers.

For long-term brand longevity, diversification is vital and while brands have and will continue to enjoy the benefits of working with the likes of Amazon, they’re becoming more aware of its Big Tech power. Australian retailers can’t afford to rely heavily on one revenue stream for continued success. Partnership arrangements, founded on the value of brand-retailer data sharing, can have a dramatic impact on the continued ability to compete effectively online without an over-reliance on Bezos’ mega-retailer. Not to mention a more balanced online marketplace – a win-win situation for retail en masse.

Colin Barnard is the Commercial Director at Criteo, ANZ. 

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